Rossyln, Va.-based National Electrical Manufacturers Association's (NEMA) Primary Industrial Controls Index climbed 11.7% on a quarter-to-quarter basis during the first three months of 2010. The index has increased in each of the last three quarters, but the latest gain marks the index's largest percentage increase since the second quarter of 2010. Industrial control shipments also increased on a year-over-year basis for the first time since the third quarter of 2008, posting an increase of 11% compared to the first quarter of 2009. Nonetheless, inflation- and seasonally-adjusted shipments remain nearly 23% below their cyclical peak. The Primary Industrial Controls and Adjustable Speed Drives Index, a broader measure of demand for the industrial controls market, recorded a robust 13.9% quarter-to-quarter increase during the first quarter of 2010 and posted its largest year-over-year increase in four years (13%).
The large gain in demand for industrial control equipment during the first quarter did not come as a total surprise since numerous economic indicators have displayed steady improvement over the past few quarters. For example, real GDP advanced 3.2% on an annualized basis in the first quarter, suggesting the economy continues to improve. Though that performance marked a deceleration from the fourth quarter of 2009, growth was more broad-based further making the case for a self-sustaining recovery. Even though the inventory cycle remained the largest contributor to calculated growth during the first three months of the year, just as it had in the two previous quarters, business investment has increased at a stronger-than-expected pace while consumer spending perked up to its highest rate of growth in three years.
Improving conditions in the manufacturing sector provide an even stronger backdrop for industrial controls demand going forward. Virtually all relevant indicators for the manufacturing sector have been improving since last summer, with that trend continuing during the first quarter of 2010. Industrial output increased 6.6% on an annualized basis, following strong gains in the previous two quarters, and the ISM manufacturing index has remained solidly in expansionary territory. Manufacturing capacity is slowly coming back on line as the national average factory operating rate reached 70% for the first time since late 2008. While the manufacturing sector's recovery is still in the early stages, industry surveys point to rising optimism and data on items such as durable goods, business investment, and export demand point to continued gains in output. Going forward, although the index's robust growth observed during the first quarter of 2010 is unlikely to be duplicated, NEMA's Industrial Controls Index should see additional gains over the course of the 2010.